Chocolate or strawberry? Work or family? Statements or paperless? Branches or digital? Success or failure?
We continuously make quick decisions almost unconsciously; others we struggle over in agony. You don’t have a choice; decisions are a necessary part of life. These decisions determine everything from our bodyweight to the success of our organizations. Unfortunately these decisions are heavily influenced by our personal experiences and biases and the availability of relevant and timely information. These limitations hamper success by increasing the likelihood of inaccurate assumptions and the advent of unforeseen consequences. Each of our personal and professional success depends on our continued ability to make smart decisions in both the short and long term. The only way to improve our success rate is to gain access to better, more relevant, timelier information. Much rides on the outcome of those decisions, and executives are judged — quite rightly — on their overall success rate.
So what’s decision-making have to do with risk management?
They are one and the same. Decisions are simply made by weighing the pros and cons — i.e., risk versus reward — and evaluating them against our desired outcome and our willingness to accept uncertainty. Risk is simply the potential for losing something of value. In business, that value could be your original investment or your expected future returns. Real enterprise risk management addresses the question around the assurance of accomplishing one’s goals and objectives. Identifying what impetuses might arise that will either dilute or enhance your credit union’s ability to meet its stated goals — i.e., avoidance and opportunity.
So why do anything different if you’ve been successful so far?
It’s not that your decision and risk-management programs are a failure or that you don’t have access to information today. However, decision and risk processes are less effective in today’s unfamiliar terrain and fast-changing industry. Current processes assume that decision makers have access to complete and reliable information, yet every business leader can acknowledge that more and more decisions involve judgments that must be made with incomplete and uncertain information.
So what is the answer? ERM, of course.
The answer is to ensure the credit union develops and leverages a framework that will consistently identify potential issues and opportunities in all facets of the business and drive prioritization of information in a proactive manner. This is, for all intents and purposes, the role of ERM. Or said differently, ERM is intended to provide reasonable assurance to an entity’s management and board that the business objectives are achieved, ergo — success. ERM is not about compliance and controls. It is about strategy, objective execution, and accomplishment.
Still not convinced your credit union needs to do anything different? Consider the following questions as honestly as you can and you be the judge:
Do you have to make decisions regarding strategy or projects where information is not fully vetted or missing? For example: when to change core systems, when to upgrade lending systems, or whether to enhance fees, offer business lending services, or extend digital programs for free or at all.
Does your organization suffer surprises on projects or strategy execution from time to time? For example: do you ever have to revise timelines or budgets, are you ever caught off guard with economic or member events, does one project unearth the need for another to fix or complete the program?
Do directors, executives, and managers always operate on the same basis of understanding and priority regarding strategy execution and risk appetite in accomplishing those goals?
Does the organization truly understand the full scope of risk it takes on individual strategies and across the organization in totality? What occurs if the unexpected happens? Where will that leave you? How will you see it coming?
How truly confident are you in the decision and risk management capabilities of the organization to operate efficiently, proactively, and without bias? Would the organization be capable of making the same decisions with you out of the mix?
Do you honestly feel that maintaining the status quo will advance or even sustain your organization over the next five years?
This is not recognition of failure but rather an understanding of management evolution. Every organization must keep pace with the rapidly changing world in which they live and compete. Your members deserve and demand the best.